The Effects of Monetary Policy on the Australian Property Market

Abstract

The use of monetary policy has important implications within an economy as it directly affects the supply and demand of cash itself. One most notable application of monetary policy in Australia is the change in the official cash rate (OCR) and its effects on both domestic as well as at international levels. We attempt to use both effects from foreign investments as well as impacts from domestic sources to measure the influences of the OCR on the Australian housing markets.

This research also draws attention towards the variation in the growth rate of property prices in major Australian cities and how it reacts to the changes in this major economic variable. Our paper also addresses the limitations of the devised models however, at a high level these models gives guidance to general movements in housing prices given monetary policy changes with fixed money supply as determined by the Reserve Bank of Australia (RBA) and with that reinforced by movements in several macroeconomic indicators.

Keywords: official cash rate; monetary policy; Australian property market; housing prices.